University loses scholarship funds

Despite the current state of the economy, the value of scholarships distributed this year by the UW-Oshkosh Foundation was only 14 percent lower than the value of scholarships distributed in the years prior to the economic downturn.  

During the 2006-07 and 2007-08 academic years, the value of scholarships issued by the foundation averaged $599,000 per year.  This year, the foundation will distribute $515,000 in scholarships. 

"There are really three pools," Becky Payne, operations coordinator for the foundation, said.  "There's the endowed (scholarships), and then there's what we call pass-through (funds) that are named but they're not endowed, and then there's the UW-Oshkosh Fund that raises scholarship money for the freshman class." 

Since 1968 when the foundation was established, alumni, businesses, corporations and other individual and organizations have created about 400 endowed scholarship accounts.  Each account can fund a single scholarship each year or as many as six, depending on the instructions of the donor.  Each year the foundation awards each of these scholarships to students who meet the criteria established by the donor. 

The UW-Oshkosh Foundation, like all foundations in Wisconsin, is governed by the Uniform Management of Institutional Funds Act. 

Simply stated, the foundation must invest the donation and use only the returns earned for scholarships.  The foundation may never allow the balance of each account to fall below the amount of the original gift. (A small number of endowments created recently do allow the foundation to invade the principal.)

In average years, these investments might earn 3 or 4 percent, according to Art Rathjen, president of the foundation.  In good years, the investments earn perhaps as much as 12 or 13 percent.  In typical years, such as in 2006-07 and 2007-08, distributions from these 400 scholarship accounts are about $150,000.

From July 1, 2007, to June 30, 2008, the endowment fund lost about 6 percent.  During the following year, from July 1, 2008, to June 30, 2009, losses to the endowment funds amounted to about 23 percent.

Because of these losses, about 350 of the scholarship accounts were underwater.  That is, their actual values were less than the amount of the original donations.  The foundation was prohibited by law from making any distribution from these accounts. 
However, due to the flexibility built into other endowment funds managed by the foundation, students still received $84,000 in scholarships from endowment funds.

With recent improvements in the economy, the endowment fund has made significant gains since July 1 and is now approximately 12 percent below the nominal value of the fund. 

"We've made a good portion of those losses back up this current year but we still have a long ways to go," Rathjen said.  "We're about halfway in recouping those losses to our portfolio."

The state legislature modified the Uniform Management of Institutional Funds Act on Aug. 4, 2009, to the Uniform Prudent Management of Institutional Funds Act.  Now foundations may make distributions from endowment funds whose nominal values are below the original amount of the fund – as long as the foundation is prudent.  That is, the foundation has the reasonable belief that the fund can recoup its losses in future years.

The UW-Oshkosh Foundation Board of Directors has adopted a conservative policy in response to this change.  When investment returns are negative, the foundation can distribute up to 1 percent of the nominal value of the fund.  When investment returns are positive, the foundation may distribute up to 6 percent of the nominal value. 

In practice, the foundation cannot choose the distribution rate.  The board of directors has approved a formula that the foundation must use to determine the distribution percentage. 

According to the formula, the distribution for the 2010-11 academic year will be 1 percent of the nominal value of the endowments, or approximately $94,000. 

Like the endowed scholarships, the non-endowed scholarships can be for a specific type of recipient, such as a graduate of Oshkosh North High School. 
Donations for non-endowed scholarships have averaged around $230,000 per year in the recent past.  Last year donations to the foundation were down about 15 percent, amounting to about $205,000. 

The amount of unrestricted donations to the foundation, which are allocated by the foundation to scholarships, has been $226,000 each year.  Rathjen expects to continue allocating this same amount to freshman scholarships in the future.  The exact number of scholarships and the selection criteria for these scholarships are established by the financial aid department.